nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2019‒12‒16
six papers chosen by
Karl Petrick
Western New England University

  1. Complexity, Conventions and Instability: the role of monetary policy By Citera, Emanuele; Sau, Lino
  2. Banking on cooperation: An evolutionary analysis of microfinance loan repayment By Gehrig, Stefan; Mesoudi, Alex; Lamba, Shakti
  3. The Cowles Commission and Foundation for Research in Economics By Robert W. Dimand
  4. Capital Controls: Theory and Evidence By Bilge Erten; Anton Korinek; Jose Antonio Ocampo
  5. The Origin and Nature of Behavioural Development Economics By Kuriakose, Francis; Joseph, Janssen
  6. Corporate Governance. Why, When, and How? By Luciano Segreto

  1. By: Citera, Emanuele; Sau, Lino (University of Turin)
    Abstract: Ever since the 2008 financial crisis, there has been both a widespread recognition that the mainstream approach on financial markets has failed to anticipate and to justify the crisis and on the need of ex ante and ex post adequate economic policies to cope with such phenomena. The aim of our paper is to provide a theoretical and methodological analysis of the role of conventions as emergent phenomena in financial markets, the latter being thought of as dynamically complex systems. Drawing upon the notion of ‘dynamic complexity’ and Keynes’ view of financial markets, we claim that social conventions can only provisionally stabilize the system, but they will eventually lead to financial instability and crisis. Then, we adopt this framework to investigate the implications for monetary policy to stabilize the system by virtue of the role of central bank to intervene, and thus shape, a convention. In this respect, we consider the credibility of the monetary authority and how it can be exerted through ‘moral suasion’ to control the financial fragility of investors’ balance-sheet positions as well as to affect the convention around the longterm interest rate.
    Date: 2019–11
  2. By: Gehrig, Stefan; Mesoudi, Alex (University of Exeter); Lamba, Shakti
    Abstract: Microfinance is an economic development intervention that involves credit provision to low-income entrepreneurs. Lenders typically require joint liability, where borrowers share the responsibility of repaying a group loan. We argue that this lending practice is subject to the same fundamental cooperation problem faced by other organisms in nature, and consequently evolutionary theories of cooperation from the biological sciences can provide new insights into loan repayment behaviour. This could both inform the design of microfinance institutions, and offer a real-world test case for evolutionary theories of cooperation. We first formulate evolutionary hypotheses on group loan repayment based on assortment mechanisms like kin selection, reciprocity or partner choice. We then test them by reviewing 40 studies on micro-borrowers’ loan repayment from 31 countries. We find more supportive than contrary evidence for the hypotheses, but results are generally mixed, generating avenues for future research within this framework. Finally, we present an evolutionary game-theoretic model of group lending as a threshold public goods game which further explains some empirical findings and generates new predictions on repayment rates. Our work shows how understanding the evolution of cooperation can guide economic development interventions and, more generally, offer ultimate explanatory theories for phenomena studied by social scientists.
    Date: 2019–10–21
  3. By: Robert W. Dimand (Department of Economics, Brock University)
    Abstract: Founded in 1932 by a newspaper heir disillusioned by the failure of forecasters to predict the Great Crash, the Cowles Commission promoted the use of formal mathematical and statistical methods in economics, initially through summer research conferences in Colorado and through support of the Econometric Society (of which Alfred Cowles was secretary-treasurer for decades). After moving to the University of Chicago in 1939, the Cowles Commission sponsored works, many later honored with Nobel Prizes but at the time out of the mainstream of economics, by Haavelmo, Hurwicz and Koopmans on econometrics, Arrow and Debreu on general equilibrium, Yntema and Mosak on general equilibrium in international trade theory, Arrow on social choice, Koopmans on activity analysis, Klein on macroeconometric modelling, Lange, Marschak and Patinkin on macroeconomic theory, and Markowitz on portfolio choice, but came into intense methodological, ideological and personal conflict with the emerging “Chicago school.†This conflict led the Cowles Commission to move to Yale in 1955 as the Cowles Foundation, directed by James Tobin (who had declined to move to Chicago to direct it). The Cowles Foundation remained a leader in the more technical areas of economics, notably with Tobin’s “Yale school†of monetary theory, Scarf’s computable general equilibrium, Shubik in game theory, and later Phillips and Andrews in econometric theory but as formal methods in economic theory and econometrics pervaded the discipline of economics, Cowles (like the Econometric Society) became less distinct from the rest of economics. This entry is part of an archivally-based history of the Cowles Commission and Foundation commissioned by the Cowles Foundation. This paper is the entry on “The Cowles Commission and Foundation for Research in Economics†in The New Palgrave Online and is included as a Cowles Foundation Discussion Paper by the kind permission of Springer Nature.
    Keywords: Cowles Commission, Formalism in economics, Mathematics in economics, Cowles approach to econometrics
    JEL: B23 B41 C01 C02
    Date: 2019–11
  4. By: Bilge Erten; Anton Korinek; Jose Antonio Ocampo
    Abstract: This paper synthesizes recent advances in the theoretical and empirical literature on capital controls. We start by observing that international capital flows have both benefits and costs, but some of these are not internalized by individual actors and thus constitute externalities. The theoretical literature has identified pecuniary externalities and aggregate demand externalities that respectively contribute to financial instability and recessions. These externalities provide a natural rationale for counter-cyclical capital controls that lean against boom and busts cycles in international capital flows. The empirical literature has developed several measures of capital controls to capture different aspects of capital account openness. We evaluate the strengths and weaknesses of different measures and provide an overview of the empirical findings on the effectiveness of capital controls in addressing the externalities identified by the theory literature, i.e. in reducing financial fragility and enhancing macroeconomic stability. We also discuss strategies to deal with the endogeneity of capital controls in such statistical exercises. We conclude by providing an overview of the historical and current debates on the role of capital controls in macroeconomic management and their relationship to the academic literature.
    JEL: D62 E44 F32 F38 F42 H23
    Date: 2019–11
  5. By: Kuriakose, Francis; Joseph, Janssen
    Abstract: The article traces the origin of behavioural development economics and brings out the characteristics of this framework in public policy.
    Keywords: Behavioural Development Economics; Neoclassical Economics; Choice Architecture; Nudge; Public Policy
    JEL: O12 Z13
    Date: 2019–03–14
  6. By: Luciano Segreto
    Keywords: Corporate Governance, Economic Institutions, Economic Democracy, Voting Rights, Regulation
    Date: 2019

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